Gold remains depressed as hot US CPI lifts Fed rate hike bets and supports USD

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Gold (XAU/USD) trades with a negative bias for the second straight day on Wednesday, although it manages to hold above a multi-day low, around the $4,638 region, touched the previous day.

Gold remains under some selling pressure for the second straight day amid a bullish USD.
Tuesday’s hot US CPI report reaffirmed hawkish Fed bets and continues to support the USD.
Rising US-Iran tensions further benefit the reserve currency USD and weigh on the bullion.

Gold (XAU/USD) trades with a negative bias for the second straight day on Wednesday, although it manages to hold above a multi-day low, around the $4,638 region, touched the previous day. Stronger-than-expected US consumer inflation figures released on Tuesday reaffirmed hawkish US Federal Reserve (Fed) expectations. This, along with geopolitical uncertainties, assists the US Dollar (USD) in holding steady near its highest level in over one week and exerts some pressure on the precious metal through the Asian session.

The US Bureau of Labor Statistics (BLS) reported on Tuesday that the headline US Consumer Price Index (CPI) rose from 3.3% in the prior month to 3.8% over the 12 months through April, or a nearly three-year high. Adding to this, the core gauge, excluding food and energy, rose 0.4% in April and the yearly rate moved up to a seven-month high of 2.8%, further away from the Fed's 2% target. Traders were quick to react and are now pricing in a roughly 35% chance that the US central bank will hike borrowing costs by the year-end.

This comes on top of concerns that consumer prices are likely to keep rising amid elevated Crude Oil prices, bolstered by the US-Iran stalemate, and pushed US Treasury bond yields higher. In fact, the 30-year US government bond yield briefly touched the 5.0% mark, putting it within reach of the yearly peak, while the rate-sensitive two-year US government bond yield remains close to the 4% threshold. This, in turn, should act as a tailwind for the USD and turns out to be another factor undermining demand for the non-yielding Gold.

Meanwhile, prospects for a US-Iran peace deal diminished further after US President Donald Trump said that the ceasefire was "unbelievably weak" and on "massive life support." Furthermore, Iran rejected a US proposal to end a more than two-month-old conflict amid disagreements over Tehran's nuclear program and a standoff over the critical Strait of Hormuz. This keeps geopolitical risks in play and might continue to benefit the USD's reserve currency status, validating the near-term negative outlook for the Gold price.

The lack of follow-through selling, however, warrants some caution before positioning for an extension of the retracement slide from a three-week high, touched on Tuesday. Traders now seem hesitant and might opt to move to the sidelines ahead of a two-day meeting between Trump and China’s President Xi Jinping. Traders on Wednesday will further take cues from the release of the US Producer Price Index (PPI) and the incoming geopolitical headlines, which will drive the USD and provide a short-term impetus to the Gold price.

XAU/USD 1-hour chart

Gold bulls seem hesitant below $4,765-$4,770 barrier; 200-hour SMA holds the key

From a technical perspective, the previous day's pullback from the $4,765-$4,770 region constituted the formation of a bearish double-top pattern on the 1-hour chart. The subsequent fall, however, showed resilience near the 200-hour Simple Moving Average (SMA), suggesting that dip-buying interest persists despite the recent consolidation. Moreover, the Moving Average Convergence Divergence (MACD) histogram remains slightly positive, while the Relative Strength Index (RSI) hovers just below the 50 line. This hints at subdued but stabilizing momentum rather than a decisive trend.

Hence, it will be prudent to wait for some follow-through buying and a sustained strength above the $4,770 resistance zone before traders start positioning for any further appreciating move. On the downside, immediate support is seen at the 200-period SMA near $4,655.51, where a break would expose deeper corrective pressure toward prior swing lows.

(The technical analysis of this story was written with the help of an AI tool.)

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.